Thoughts on lawyers, dealmaking, M&A and other quirks of corporate life.

Friday, November 25, 2011

AT&T, T-Mobile & Opportunity Cost

AT&T's acquisition of T-mobile is on the rocks, and
it looks like things are going to get uglier before everything settles
out. As I mentioned in this CNN article,
I'm convinced the deal is dead. My belief isn't driven by any particular
dislike for this deal; in fact, I think it makes a lot of sense. But it was a big gamble that regulatory
approval would come through, and sometimes things don't work out.

The problem here is moving on crisply. A major consolidating transaction is
distracting enough; but trying to push one through the regulatory bog AT&T
is facing? The DOJ has sued to block the
merger. The FCC has referred the matter
to an administrative hearing - a near-unheard of event. AT&T has responded by taking its ball and going home,
pulling back its transfer application in the hopes that it can refile once it
works things out with DOJ. All of this
spells additional delay and uncertainty.
Neither AT&T or T-Mobile can move forward fully until the merger is
resolved, one way or the other. In the
meantime, Verizon can keep taking market share steadfastly, not burdened down by
distracting strategic considerations.

It's an object lesson in one of the dark sides
of inorganic growth. Yes, many mergers
fail to deliver value. But even those
mergers that likely would work out can backfire if they take too long to
consummate. Company leadership may say
all the right things about execution, but merger planning will consume
resources and narrow strategic considerations for as long as the deal is pending.
Telecom mergers - with joint review via two separate federal agencies -
are inherently time-consuming. Combine
that protracted merger with additional delay, a rapidly-changing industry and a
tough competitor leading the market, and it's a recipe for disaster. Doing a deal with T-mobile probably made all
the sense in the world when AT&T drew it up a year ago. But now that the knives have been drawn, and
the best hopes for the merger have dimmed, AT&T must ask the hard question,
and ask it soon: does it continue to
throw good money after bad? For while
AT&T is on the hook for a $4 billion breakup fee, there is a very real cost
to letting pursuit of a merger prevent full-throated competition in the
marketplace with Verizon.